Kentfund (Asia) Ltd. v. The Incorporated Owners of Fu Kar Court

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

Building Management Application No. LDBM 209 of 1998

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J U D G M E N T

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1. The Applicant is the owner of 4 car parking spaces, at LG8, UG58, UG58A and UG60 in the building known as Fu Kar Court (the building). The Respondent is the incorporated owners of the building.

2. A deed of mutual covenant, Memorial Number 2459226, was registered in the Lands Registry in respect of the building.

3. The Applicant became the owner of the car parking spaces in 1994. From then onwards, until October 1997, the Applicant had always paid the management fees as demanded by the Respondent.

4. In October 1997, the Applicant became aware of the fact the management fees for the car parking spaces had not been levied in accordance with the deed of mutual covenant. The Applicant protested about this to the Respondent, and refused to pay the management fees demanded.

5. The Respondent sought legal advice, which was discussed in a management committee meeting on 2nd March, 1998. It was decided to seek a second legal opinion. Before it was done, the Applicant took out the present application.

6. Neither the Applicant's witness, the Applicant's director (AW1), nor the Respondent's first witness, the present Chairman of the Respondent, who has been the Respondent's committee member since 1994 (RW1), had ever read the deed of mutual covenant or was aware of its terms until 1997. This was when a new committee member, Mr. Chan Chin Yui, who became an owner in 1997, raised the point that the management fees had not been apportioned in accordance with the deed of mutual covenant.

7. The Respondent's second witness, (RW2), the staff from Urban Property Management Limited, the present management company, was in charge of the estimation of the management fees for the building's domestic units and car parking spaces for the budget from 1998 to 1999. His evidence was that he was informed by his predecessor, that on instructions of the previous Chairman of the incorporated owners, management fees should be levied in accordance with the actual expenses for the domestic units and car parking spaces respectively. In preparing the budget, RW2 did not refer to the deed of mutual covenant. He calculated the management fees in accordance with the actual expenses only.

8. RW1 gave evidence that the present management committee decided to adhere to the practice of demanding management fees separately for domestic units and the car parking spaces. The apportionment and calculation of the increase in the management fees were decided with reference to the actual expenditure for the domestic units and car parking spaces respectively. There was no reference to the deed of mutual covenant. RW2's evidence supported this.

9. The fact is that the Respondent had, at least from 1989, determined the increase of owners contribution to the management expenses with reference to the actual expenses for domestic units and car parking spaces separately. This was done in total disregard of the deed of mutual covenant. The deed of mutual covenant provided for a proportionate contribution from both owners of domestic units and car parking spaces as a whole. I find that since 1989, the owners contribution had been determined in proportions other than provided for in the deed of mutual covenant.

10. The Applicant's conduct since 1994, when it became an owner, to October 1997, was such that it may be approached on the basis that it had made payment to the Respondent without objection for three years.

11. It was contended for the Respondent that since the Applicant had paid the management fees demanded from 1994 to October 1997 without demur, during which time an increase in management fees was adopted, the Applicant was estopped from asserting its rights under the deed of mutual covenant. The Respondent alleged that the Applicant should not be able to demand that the management fees be levied in accordance with the deed of mutual covenant. It was said that to allow the Applicant to do so would prejudice the Respondent, who had acted to its detriment, relying on the Applicant's inaction to insist on its strict legal rights.

12. The Applicant's case was that until the Applicant became aware of the breach of the deed of mutual covenant, it was not in a position to raise any objection. The Applicant should not be considered to have acquiesced in the breach. Although the Applicant waived its rights to claim for repayment of the amount overpaid from 1994 to October 1997, the Applicant did not concede that it had ever acquiesced in the Respondent's breach of the deed of mutual covenant.

13. The burden of establishing acquiescence is on the Respondent. It has also to establish that there had been a sufficiently long period of acquiescence to reach a level of "notorious and avowed acquiescence " in a breach of covenant "from which it may be presumed that the otherwise unlawful act has grown into a right, so that an abandonment of the covenant is to be presumed..." Fairfax v. Attorney General [ 1995] 2 HKC 617 at 621. This is not the case here.

14. The Respondent as the incorporated owners is "under a statutory duty to do all things necessary for the enforcement of the obligations contained in the deed of mutual covenant." The Incorporated Owners of Hoi Luen Industrial Centre v. Ohashi Chemical Industries (Hong Kong) Ltd. [1995] 2HKC 11

15. Under Section 18 (1) of the Building Management Ordinance Cap.334, the incorporated owners "shall -

( c ) do all things reasonably necessary for the enforcement of the obligations contained in the deed of mutual covenant (if any) for the control, management and administration of the building."

16. A deed of mutual covenant is the document which defines the rights, interests and obligations of the owners among themselves. It has to be registered in the Lands Registry. ( Section 2 Building Management Ordinance Cap. 344) This deed binds all owners, their successors and assignees. All subsequent owners and their assignees are entitled to look at the deed of mutual covenant so registered, and to take it as the document encompassing all rights, interests and obligations as among themselves.

17. In this deed of mutual covenant, the proportions of the owners' contribution had been fixed in Clause 8 (a), and the increase under Clause 8 (e). The proportions set out in Clause 8 (a) of the deed of mutual covenant cannot be varied without a formal amendment of the terms of the deed. This has never been done.

18. The Respondent cannot and should not be allowed to vary the rights, interests and obligations of the owners under the deed of mutual covenant. It cannot merely rely on the inaction of owners, and the fact that the present management committee had allowed the state of affairs to continue, after they were put on notice that they had been acting in contravention of the deed of mutual covenant, to say that it had the mandate to do so.

19. The management fees for the car parking spaces must be levied in accordance with Clause 8 (a) of the deed of mutual covenant, registered at the Lands Registry under Memorial Number 2459226.

20. Costs to the Applicant to be taxed if not agreed.